IDEAS home Printed from https://ideas.repec.org/p/iie/pbrief/pb12-4.html
   My bibliography  Save this paper

The European Crisis Deepens

Author

Listed:
  • Peter Boone

    () (Peterson Institute for International Economics)

  • Simon Johnson

    () (Peterson Institute for International Economics)

Abstract

Successive plans to restore confidence in the euro area have failed. A combination of misdiagnosis, lack of political will, and dysfunctional politics across 17 nations have all contributed to the failure so far to stem Europe's growing crisis. Proposals currently on the table also seem likely to fail. Boone and Johnson say the euro area faces two major problems: First, the introduction of sovereign credit risk has made nations and subsequently banks effectively insolvent unless they receive large-scale bailouts. Second, the ensuing credit crunch has exacerbated difficulties in the real economy, causing Europe's periphery to plunge into recession, thus increasing the financing needs of troubled nations well into the future. Five measures are needed to enable the euro area to survive: (1) an immediate program to deal with excessive sovereign debt, (2) far more aggressive plans to reduce budget deficits and make peripheral nations "hypercompetitive" in the near future, (3) supportive monetary policy from the European Central Bank, (4) the introduction of mechanisms that credibly achieve long-term fiscal sustainability, and (5) institutional change that reduces the scope for excessive leverage and consequent instability in the financial sector.

Suggested Citation

  • Peter Boone & Simon Johnson, 2012. "The European Crisis Deepens," Policy Briefs PB12-4, Peterson Institute for International Economics.
  • Handle: RePEc:iie:pbrief:pb12-4
    as

    Download full text from publisher

    File URL: https://piie.com/publications/policy-briefs/european-crisis-deepens
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iie:pbrief:pb12-4. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster). General contact details of provider: http://edirc.repec.org/data/iieeeus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.